How to Create Financial Projections for Your Agency's Business Plan

September 26, 2017 Becky Schroeder

Perhaps the most intimidating part of any business plan is the financial projections. Financial statements are filled with terms and concepts that can be unfamiliar and overwhelming.

If this is you, know you’re not alone. It is possible to put together financial projections for your business plan without a background in finance. 

Purpose of Financial Projections

There are two main reasons for including financial projections in your business plan.

First, the revenue potential of your agency is going to be one of the first questions investors or lenders are going to ask. They will want to see projections that your agency will grow. They want to know they will see a return on their investment or that you will be able to repay the loan.

Carriers will also be interested in knowing high level financial details of your business plan as they provide appointments.

But, the most important reason is for your benefit. This is your budget. How you know what you’ll need, when you’ll start to make a profit, etc. And, like the business plan as a whole, it’s also your guide to running your agency.

Things to Remember

Before you get started, there are a few things to keep in mind as you work on these financial statements.

First, projections are not accounting statements. They are an educated guess. So, don’t get bogged down in specifics. Summarize and gather information so you can give it your best guess. Which leads to the next point.

Be realistic. A sales forecast that starts off relatively flat and then drastically jumps up is exciting. And unlikely. To create a credible financial section of your business plan, provide realistic estimates for sales, revenue and expenses.

Get help if you need it. If you have experience in the insurance industry, you may not need help. You can use what you already know to create your financial projections.

If you’re new to the industry, find other agents you can talk to who will share their knowledge. Or, ask your local or state association if they have anything that can help you. You can also ask an accountant who has insurance industry experience.

How to Write Financial Projections

1. Sales Forecast

You will need to project your sales over the next three years. Do the first year’s forecast by month. You can do quarterly for years two and three. Break your projected sales into sections by line of business.

It can be difficult to forecast sales because policies are priced differently according to the person and the assumed risk. Which means your commissions will differ sale to sale.

But remember... Financial projections are an estimate. Your best guess. So, use the average policy premium for your target market and average commission per policy.

You’ll also need to calculate your cost of goods sold (COGS). For service-based businesses, COGS may be referred to as cost of revenue. By either name, this number will help you find the gross margin you expect per policy.

COGS are all the direct costs involved with selling and delivering the product or service that your new agency sells. This can include any sales commissions and postage costs, like if you mail or ship policy paperwork. Divide the total of these costs by the number of policies you expect to sell that month. That’s your COGS per policy.

Here’s a template you can use to build your sales forecast.

LOBs Month 1 Month 2 Month 3
LOB 1      
Policies Sold      
Total Sales      
Total COGS      
Total Margin      
LOB 2      
Policies Sold      
Total Sales      
Total COGS      
Total Margin      
Total Policies Sold      
Total Sales      
Total COGS      
Total Margin      


2. Expenses Budget

After the sales forecast, you know your gross margin. There’s still some work to do to find your net profit, what your agency will actually have at the end of each month or year. Starting with your expenses.

When projecting your expenses, you’ll want to separate your startup expenses from your operating expenses. Startup expenses are what you need to get your agency started. This can include licensing fees and costs to register your business. Operating expenses are the costs to continue running your agency. Your expenses budget is where you put items like rent, comparative rater, agency management system, insurance, salaries, advertising, etc.


3. Cash Flow Statement

A cash flow statement shows how much cash is available as the dollars move in and out of your business. You base this statement on your sales forecasts, balance sheet and other projections.

Here’s a template you can use for your cash flow statement.

  Month 1 Month 2 Month 3
Cash Revenue from Sales      
Cash Disbursements      
Owners Distribution      
Operating Expenses      
Line of Credit Interest      
Line of Credit Repayments      
Dividends Paid      
Total Cash Disbursements      
Beginning Cash Balance      
ADD: Total Cash Revenues      
DEDUCT: Total Cash Disbursements      


Remember, you’re going to be living off your startup capital or borrowed money until your revenue increases. Starting in your second year, you will have renewal income. This is why retention is important.

Retention drives the long term value (the total financial value) of your customers for your agency. But, a blanket retention rate is not the best way to understand that long term value. There are other metrics that can help you understand this better.

Back to cash flow in the first few years of your new agency. In years two and three, you might have some months where you break even and some months with a positive cash flow. Be prepared for those first years of your agency while you work to get your revenues greater than your expenses.


4. Profit and Loss Statement

This is also called an income statement or earnings statement. Your profit and loss statement uses numbers from your sales forecast, expenses budget and cash flow statement to get your net profit. It shows how profitable you expect your agency to be.

Like your sales forecast, you should break up your income statement by month for the first year. Year two can be quarterly. Years three and on can be an annual statement.

Here’s a sample profit and loss statement.

  Month 1 Month 2 Month 3 Annual Total
     LOB 1        
     LOB 2        
Total Revenue        
     LOB 1        
     LOB 2        
Total COGS        
Gross Margin        
Operating Expenses        
     Legal/Professional Services        
     Technology (e.g., rater or management system)        
     Office Expenses        
     Travel, Meals, Entertainment        
Total Operating Expenses        
Other Expenses        
     Interest - Loan        
     Interest - Credit Card        
     Interest - Line of Credit        
Total Other Expenses        
Net Income Before Income Tax        
Income Tax        
Net Profit/Loss        


5. Balance Sheet

The income statement shows what you earn. The balance shows what you’re worth. On the balance sheet are assets and liabilities that aren’t in the income statement.

What are assets and liabilities? Simply put, assets are the tangible objects of value that you own. Liabilities are the debts you owe to others. Equity is the difference when you subtract liabilities from assets.

Here’s a sample balance sheet.

Current Assets  
     Accounts Receivable  
Total Current Assets  
Fixed Assets  
     Real Estate - Land  
     Real Estate - Buildings  
     Furniture and Fixtures  
Total Fixed Assets  
(Less Accumulated Depreciation)  
     Accounts Payable  
     Loan Balance  
     Credit Card Debt Balance  
     Line of Credit Balance  
     Retained Earnings  
     Dividends Dispersed  
In or out of balance (Subtract assets from liabilities and equity. They should be equal.)  


6. Breakeven Analysis

Investors will want to know at what point you expect to break even. The breakeven point is when your total expenses matches your sales volume. Investors will also want to see that your revenue will not just match but exceed your expenses.


Like with your business plan, financial projections are not something you do once and forget about it. It is most useful when you look at it regularly to see how you’re actually doing versus what you projected.

At the end of each month, take your actual profit and loss statement and compare it to your projections. You can use this comparison to revise your projections.


Got a question about starting an agency you’d like us to answer in a future post? Leave it in the comments below.

About the Author

Becky Schroeder

As Chief Marketing Officer, Becky Schroeder is responsible for driving ITC’s overall marketing strategy for the company and its products. Her specialties include creating and documenting processes; establishing metrics for managing those processes; developing content strategy and generating leads; and developing marketing strategy. Becky was named an Elite Woman in Insurance by Insurance Business America in 2016. She has a master’s degree in integrated marketing communication from Emerson College in Boston and a bachelor’s degree in journalism from Texas A&M University. Becky is a big Texas A&M football fan and enjoys cooking, reading and spending time with her husband and their three daughters.

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